UAE: New residency and ownership rules

The UAE’s surprise announcement that it will allow full foreign ownership in companies and grant long-term visas to select investors and professionals is set to have far reaching effects, ranging from the encouragement of foreign investment and helping the UAE become a magnet for highly skilled professionals to providing a positive boost to the country’s real estate sector, according to a number of experts.

The new rules will allow for residency visas of up to 10 years for specialists in scientific, medical, research and technical fields, and are a long awaited departure from the previous regulations that called for the establishment of businesses to have a local partner owning 51 percent of the venture. Additionally, the new rules provide for five-year visas for students and 10 year-visas for “exceptional” students.

Attracting FDI

The UAE’s decision to allow full foreign ownership comes at a time when the country is in the midst of an ambitious diversification effort as it moves to become even less dependent on oil. Among the main benefits of the change, many are claiming, is that it will boost growth by attracting more foreign direct investment, primarily into non-oil sectors, as well as encouraging foreigners to set up more businesses in the country.

“Many people held back from investing here as they felt there was no long-term tenure and they were dependent on a short-term visa,” Chavan Bhogaita, the head of market insights and strategy at First Abu Dhabi Bank told Bloomberg. “Now, with a 10-year visa and 100 percent foreign ownership, investors and people looking to set up and grow businesses here will have more confidence.”

A boon for the real estate sector

Real estate is one of the sectors that stands to benefit most from this move, as the changes should encourage the UAE’s expatriate population to remain in the country for longer periods. The announcement was immediately hailed by real estate professionals and construction executives as a genuine turning point for the industry.

“Longevity of residence for expats is going to be a game changer as the population’s historically transient nature gives way to semi-permanency,” Faisal Durrani, partner and head of research at Cluttons, told Arabian Business. “The move will clearly go some way to stemming the loss of human talent from the UAE and will also contribute to more stable and sustainable demand for residential and commercial property from domestic buyers. This privileged group of expats [who benefit from the changes to the rules] will undoubtedly feel a greater sense of belonging, which will facilitate the emergence of stronger and deeper communities.”

Durrani’s comment was echoed by Core Savills partner Edward Macura, who said the announcement would be a boost to both supply and demand in the property sector “by way of attracting and retaining long-term investors and also skills professionals.”

“Direct and indirect effects are expected to come into play, such as population stabilisation and growth, renewed confidence in the property market and an increase in expat end-user purchasers, who are likely to invest in their own homes within the UAE instead of repatriation to their home markets.”

The new rules are expected to help start-ups and entrepreneurs by cutting down on costs. According to Aramex founder and Wamda Capital managing partner Fadi Ghandour, the new ownership rules are “truly a game-changer any way you look at it.

“It will make life much easier for entrepreneurs and businesses for entrepreneurs and businesses in general,” he added. “It will attract new investments, new talent, new capital, certainly new start-ups.”

Fares Ghandour, a partner at Wamda Capital, said that the longer residencies and ownership rules created by the changes to the law will also encourage more people to begin operating as freelancers and reduce their dependence on free zones.

“Beyond employment, the residency will give more cushioning for freelancers and researchers to reside in the country without the need to depend on employment,” he noted. “I think the local ownership laws are more interesting than the residency permit laws actually, because [they] will reduce dependence on free zones and free zone real-estate which is inflated relative to the onshore market.”

Despite the fact that the new ownership laws will mean that businesses hoping to set up shop in the UAE will no longer need to be located in free zones to avoid having to have a local partner, that isn’t to say that the importance of free zones will diminish. In fact, according to Virtuzone chairman Neil Petch, free zones also stand to benefit, as do UAE nationals.

“The new mandate will remove the worry of personality liability from PSCs [professional services companies] whilst at the same time not removing the revenue stream for local agents which would have caused resistance to this highly positive move,” he said. “Indeed, Emiratis exposed to liabilities from defaulting expats would no longer be a concern. In short, it’s a win-win, boosting confidence and thus the economy.”

Petch also remarked that while some companies may “evolve” onto onshore companies in the wake of the rule changes, he doesn’t believe that there will be a decrease in the number of companies seeking to set up shop in free zones. “The changes with respect to mainland companies will serve more as an obvious means to evolve for smaller companies now growing into larger ones than as a competitor to the start-ups being incubated in the UAE’s low tax environment,” he says.

“For every company that evolves from free zone to onshore, expect five or ten to come from Europe, Asia or the States as they realise that the UAE’s low tax environment represents a far better choice than previous favourites Cyprus, Malta, Singapore, Hong Kong and Monaco.”